Amid months of hand-wringing about the state’s financial footing, Massachusetts ended the most recent budget cycle with tax collections that just about matched the official forecast for modest growth.
Tax collections from all sources totaled $43.708 billion in fiscal 2025, a 7.1% increase over fiscal year 2024 and 5.1% more than the benchmark, the Department of Revenue announced Friday. That was driven by growth in the income surtax, capital gains tax revenues, sales and use taxes, and “all other” taxes, which were “partially offset” by decreases in corporate and business taxes, according to DOR Commissioner Geoffrey Snyder.
The state hauled in $38.282 billion from tax sources other than the surtax on wealthy households and capital gains in the fiscal year that ended June 30, about $52 million or one-tenth of a percentage point above the benchmark that lawmakers and the Healey administration used to build the fiscal 2025 annual budget, DOR said.
The report does not shed light on fiscal 2025 spending, but analysts said the final accounting puts the state in a solid position early in fiscal year 2026, when they expect economic trends and cuts to federal funding could test the spending appetite top Democrats have displayed.
“I don’t think this changes the playbook heading into the larger revenue months in FY26. It’s a good thing that it appears we will end fiscal year 2025 without having to take any extreme measures to end the year in balance,” said Massachusetts Taxpayers Foundation President Doug Howgate. “But the fundamentals of uncertainty and needing to manage some of the revenue and spending exposures we see in the [fiscal] ’26 budget — those are unchanged.”
In June, the final month of fiscal 2025, Massachusetts collected $4.562 billion in taxes, which was $67 million or 1.5% more than June 2024 and $63 million or 1.4% above the monthly benchmark.
Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said the final year-end picture lines up with what officials predicted.
“Different story for the final [quarter], which suggests that the state economy is running at stall speed,” he wrote to the News Service. “Sales tax growth and income tax withholding both up 2.8% Apr-Jun 25, compared to Apr-Jun 24. That’s about half what you’d expect (and half the average since 2010).”
DOR last month certified preliminary estimates that the state collected $2.987 billion from the surtax in fiscal 2025 and $2.439 billion from taxes on capital gains.
Because of statutory and constitutional requirements, those totals put Beacon Hill in a position to stash more money into reserves, and set up another sizable surtax surplus that lawmakers will get to dole out to education and transportation investments.
Budget-writers agreed to spend only $1.3 billion in surtax funds through the fiscal 2025 annual budget, so the overage could be available for a one-time spending bill like the measure Gov. Maura Healey signed in June or for other ideas, like Healey’s push to fund research at public colleges and universities that have lost dollars from Washington, D.C.
Healey will soon file an annual closeout budget needed to complete accounting for fiscal year 2025. Howgate said he would “be very surprised if we didn’t end the year with some level of surplus.”
Budget-writers in January agreed to plan for a 2.2% increase in state tax revenue growth, expecting a more muted outlook for fiscal 2026. In the months since then, officials have grown increasingly concerned about federal cuts to Medicaid, food aid and other programs creating major budget headaches.
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